International Trade TRENDS and INSIGHTS December 2019 Large Law Firm of the Year
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International trade TRENDS AND INSIGHTS December 2019 Large Law Firm of the Year New Zealand Law Awards 2019 New Zealand Deal Firm of the Year Australasian Law Awards 2019 New Zealand Contentious Firm of the Year Managing IP Asia-Pacific Awards 2019 Contents Trading in turbulent times ..........................................................................................................2 The world economy .....................................................................................................................3 Dispatches from the trade war .................................................................................................4 Brexit update .................................................................................................................................9 Heat on Iran .................................................................................................................................. 10 Trends and signs of fair weather ............................................................................................. 11 Making sense of it all ................................................................................................................ 20 Chapman Tripp’s international trade specialists ............................................................... 21 International trade TRENDS AND INSIGHTS December 2019 HOME 1 Trading in turbulent times After a long period of relative stability and growth in global trade, the future is looking increasingly uncertain. A confluence of factors have come together to define and shape the global economy in the early years of the 21st century and the result is a turbulent present and uncertain future. The situation was succinctly expressed by Prime Minister of Singapore Lee Hsien Loong at the 74th Session of the United Nations General Assembly on 27 September 2019: “Today, there is a strong pushback against an open, integrated global economy. The view that globalisation and free trade have worsened inequality has grown. But in truth globalisation and free trade have improved the lives of billions of people around the world … a fragmented world with less growth and prosperity will create markets and create tension and instability in the international system.” In this year’s edition of International trade – trends and insights, we canvass developments in 2019 and consider what we can expect in 2020. The macro picture at the global level is one of continued uncertainty and disruption. But we shouldn’t forget there are also positive stories, with New Zealand exporters continuing to do incredible things on the world stage. We profile some of those here. International trade TRENDS AND INSIGHTS December 2019 HOME 2 The world economy The world economy has not yet sunk into recession The IMF has trimmed its growth forecast for 2020 but all the major forecasters – the World Bank, to 3.4%, while WTO economists are forecasting that the Organisation for Economic Cooperation and world merchandise trade volumes will rise only 1.2% Development (OECD), the World Trade Organisation this year and 2.7% next year – down from previous (WTO) and the International Monetary Fund (IMF) – forecasts of 2.6% and 3.0% respectively. have cut their growth forecasts back to the weakest levels since the 2008-2009 global financial crisis.1 While the IMF report the services sector has so far continued to hold up across the world, a number of There is a considerable uniformity of view with the recent surveys in Europe and the United States (US) IMF talking about a “synchronised slowdown” as point to a worldwide contraction in manufacturing, demand for capital goods and investment wilts under which is starting to spill over into domestic demand higher tariffs and the uncertainty generated by the for services. trade war. A joint Brookings Institute/Financial Times publication goes further and talks of “synchronised As a small, export dependent country, New Zealand stagnation” as: is particularly vulnerable to global economic shifts. Fortunately, commodity prices for our key exports “persistent trade tensions, political instability, have remained reasonably strong to date despite geopolitical risks, and concerns about the limited global uncertainty but3, if the world economy slows efficacy of monetary stimulus continue to erode down, we will likely feel the impact as slower growth in business and consumer sentiment, holding back a key market like China equates to lower demand for investment and productivity growth”.2 imports from New Zealand. Real GDP growth Annual percent change Emerging market and developing economies Advanced economies World 1 Financial Times, “Trade wars are pushing the global economy to the brink”, The Editorial Board, 5 October 2019. 2 See: https://www.brookings.edu/research/october-2019-update-to-tiger-sliding-into-synchronized-stagnation/ 3 Business NZ, “Planning Forecast”, September 2019: www.businessnz.org.nz/__data/assets/pdf_file/0007/178783/190923-Sept-2019-Planning-Forecast.pdf International trade TRENDS AND INSIGHTS December 2019 HOME 3 Dispatches from the trade war The trade war began in 2017 when a US International At the start of 2019, more than half of Chinese Trade Commission’s investigation found that imports exports to the US, worth US$250b, were subject to of Chinese solar panels had caused injury to American tariffs upon entry to the US. These had been imposed solar panel market and producers. This was followed in two tranches set at 25% – the first on US$36b by a similar report on washing machines, and then of goods, the second on US$16b – during 2018 by the imposition of tariffs on imports of both following release of the ‘section 301’ report by USTR. products in early 2018. China responded with tariffs Subsequently, there was a third tranche on US$200b on American sorghum, setting in place a pattern of of imports set at 10%. escalating action that would continue to be seen in other contexts – the Department of Commerce’s China reacted to the 2018 tariffs by imposing its own ‘section 232’ report on steel and aluminium imports, ‘retaliatory’ tariffs on US$110b of imports from the and the United States Trade Representative (USTR)’s US (and reducing tariffs from other countries). ‘section 301’ report finding that China was engaging in unfair trade practices related to technology transfer, intellectual property and innovation. US-China trade war tariffs: An up-to-date chart Updated on October 11, 2019 Average tariff rate, percent . +8.6pp in six months . eight months «.8pp in . six months +11.1 pp in three months . eight months . China’s tariffs on US exports . +8.2pp in . three months . six months . US tariffs on Chinese exports . six months . Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan pp = percentage point Note: Trade-weighted2018 average tariffs computed from product-level (6-digit Harmonized2019 System) tariff and trade data, weighted by exporting country’s exports to the world in 2017. Source: US-China TradeFebru Warary 7 Tariffs: An Up-to-Date Chart from PIIE Charts, by ChadJanua P. Bown,ry 1 originally published by the Peterson Institute for International Economics, on October 11, 2019. (www.piie.com/research/piie-charts/us-china-trade-war-tariffs-date-chart).China suspends retaliation against US autos and parts washing machines March 23 February 8 International trade TRENDS AND INSIGHTS washing machines in second year of policy December 2019 April 2 HOME 4 June May 1 US products (subset of $60 billion, June 1) July 1 July 1 products September 1 July 6 and China's retaliation on some US products (subset of retaliation ($34 billion) $75 billion) August 23 September 17 China implements product exclusions on less than $2 retaliation ($16 billion) billion of US exports from $34 billion and $16 billion lists September 24 December 15 retaliation ($60 billion) and China's retaliation on some US products (subset of $75 billion) and re-imposition of suspended retaliatory November 1 #PIIECharts Learn more at piie.com/research/piie-charts pp = percentage point; MFN = most favored nation Note: and trade data, weighted by exporting country’s exports to the world in 2017. Source: Updated on October 11, 2019, using data from Chad P. Bown's blog post, "US-China Trade War: The Guns of August." The US tariffs in 2018 initially • China announced retaliation Meantime, China has tried to targeted intermediate inputs with tariffs on $75b of imports win the PR battle through the and capital equipment used by from the US to mirror the publication in eight languages of American-based companies, then two-stage US rollout, on a White Paper which emphasises moved to include more consumer products including crude oil, that, in its view, the source of the goods. Retaliatory Chinese tariffs soybeans, pork, chicken, wheat, trade war is the US, “In response went in the other direction – sorghum, cotton and other to the economic and trade friction beginning with agricultural and farm products. China also unilaterally initiated by the US food products (including soybeans, announced tariffs of 5% and since March 2018, China has had seafood, fruit and nuts, pork, and 25% on US-made vehicles to take forceful measures to dairy), petroleum products and and auto parts. defend the interests of the nation medical equipment then shifting and its people.” to also cover intermediate inputs The US tariffs have been and capital equipment. accompanied by non-tariff In between the tariff measures, including: announcements, there have been